I think it's worth to book a bit ahead if that means you can save that much money. E.g. book the flights ahead of time and then still spend a few weeks at every destination. This itinerary is meant to take like 2-3 months. You can still go to all the little towns and villages. But it might make sense to fly into the cities to score the cheap deals. And if you're on such a tight budget just don't stay in super expensive places like London or Paris (just use them as connection hubs...)
All I want to do with this itinerary is show the economies of traveling in Europe e.g. flying from London to Linz and not to Vienna which will cost you 5 times as much. Or flying from Rome to Barcelona instead of Zurich to Barcelona lets say.